September 22, 2011

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In olden days, when the Democratic Party was liberal and populist, it was the Dems who bashed the Federal Reserve. When the Fed pushed up interest rates to drive the economy into recession, Democrats would tell the central bankers: get off the backs of the working people. Now it is the Republicans complaining, the party of money. The GOP leaders demand that the Fed do—what?—do nothing. Nothing at all to help the wounded economy.

It sounds dumb, except Republicans are figuring folks won’t figure out their real purpose (shivving Barack Obama). They assume attacking the Fed is cost-free in our deranged politics, and they are probably right. Who wants to stand up for the mysterious agency that dispensed those many trillions to distressed megabanks with no strings attached? On the far, far right, there are adherents to dark theories that the Fed was created by the Rothschilds and is owned by the Gnomes of Zurich.

Democrats turned respectable and have nothing to say to the monetary policy-makers besides urging them to do the right thing, whatever that is. The party has lost its sense of direction on so many important issues—we rely on Senator Bernie Sanders, the socialist, to stand up for truth and justice.

The right-wingers are attacking the central bank’s chairman, Ben Bernanke, for a very modest gesture toward stimulating the dead-man-floating economy—buying more long-term Treasury bonds to bring down interest rates. Senator Sanders blamed the Fed—correctly—for not doing enough. That line should be the drumbeat for Democrats, both to counter the Republican bullying and to force a debate on more aggressive monetary policy.

The Fed “twist”—selling short-term loan paper to buy long-term—greatly disappointed Wall Street because the traders were hoping for much more. They want the Fed to descend with a miraculous rescue for them, the kind Alan Greenspan used to deliver when stock prices were crashing. Greenspan’s soft-hearted regulation is what got the country into this mess.

Bernanke is at least trying to dig out. Give him that. His remedy will have very little impact on economic activity, for an obvious reason—interest rates are already very low, near zero for short-term paper, only 4 percent for long-term borrowing. That is not the reason people aren’t buying houses or banks aren’t lending to small businesses. The system has tanked. Reviving it will require truly radical measures—too radical for conservatives like Bernanke and probably for liberals like Obama.

This can change abruptly. Right now, the fever is rising in financial circles, a renewed anxiety that another huge crash may be near, the kind of event that renews the banking crisis. If this occurs, it will give the right-wingers more ammunition for Fed bashing. Cooler heads will recognize that calamity can generate the political will for a profound shift in governing strategies, for the kind of radical measures so far avoided by both parties. Someone wake up the Democrats.